Bank of Valletta is preparing to support a second JEREMIE-type initiative making funding available to small businesses which is expected to be launched by the European Investment Fund in the next few months, chairman Roderick Chalmers told The Times Business on Monday.
As electorates reject austerity, Europe’s leaders will come together to find a third way
By the end of March, 254 (mostly micro) enterprises were granted €22.8 million under the JEREMIE, or Joint European Resources for Micro to Medium Enterprises programme, to which BoV has committed €51 million over three years. €25 million was made available in the scheme’s first year since last April; a second tranche of €20 million is now to be released, to be followed by the remaining €6 million.
A range of business ideas – from tourism-related projects to a flying school – were granted funding at advantageous rates and low collateral requirements to entrepreneurs who might otherwise have struggled to access credit. The EIF has written to BoV, commending the positive results registered by JEREMIE in Malta which, it said, could be taken as a test case for other member states.
“The EU will be prepared to fund JEREMIE-type initiatives as part of its counter-austerity measures to encourage young entrepreneurs, create employment and competitiveness,” Mr Chalmers explained. “Bank of Valletta has been able to implement JEREMIE so quickly because small and medium businesses are our home territory. We understand the sector and the culture. And unlike many other jurisdictions, we have leveraged the EIF support with our own funds.”
BoV’s readiness to support even the smallest players in the local community falls under its ‘open for business’ philosophy that has seen the bank continue to grow its business – in “marked contrast” to its counterparts across the continent who have been shrinking or “de-leveraging” their balance sheets in an effort to comply with more stringent capital requirements.
The bank reported pre-tax profits of €49.1 million to the six months ended March 31, up from €45.2 million in the comparable period last year, its highest level of first-half profits since 2007. Some aspects of the bank’s operations have fared better than others, but the bank has continued with its “steady as you go” manner against a somewhat gloomy macro-economic backdrop which Mr Chalmers anticipates will make for a even more challenging second half to the year.
On Sunday, Nicolas Sarkozy became the latest eurozone leader to be ousted, and the traditional establishment parties in Greece were punished by the electorate. Mr Chalmers said it was clear voters had put their wallets first – ahead of the eurozone ideal.
The potential implications of the Greek people’s choice at the ballot box are yet to be seen, although the markets are anticipating the possibility of a second Greek default. Mr Chalmers maintains the eurozone will survive, though perhaps not in its entirety – and the situation risks being compounded by markets left to guess the next potential victim of the crisis.
“There is a change in sentiment,” Mr Chalmers continued. “So far, austerity has been the medicine – but it is clear that it does not fix the jobs problem. Only growth will. Is it possible to have austerity and growth at the same time? It is quite a tightrope to walk, but it can be done. As electorates reject austerity, Europe’s leaders will come together to find a third way. If they want the eurozone concept to continue, they will have to find a different answer to this crisis – especially in finding a solution to the socially destabilising problem of youth unemployment.”
Malta’s economic resilience has served the country in good stead. The growth enjoyed by the financial services and online gaming sectors has been counter-cyclical. The authorities’ ‘open skies’ policy, allowing low-cost airlines to open up numerous routes to Malta, was “perfectly timed” and served to counter-balance losses from the traditional Italian and UK markets.
Although Malta’s deficit is respectable, the island is obliged to observe the ‘Golden Rule’ which stipulates the structural deficit is limited to 0.5 per cent of GDP and debt-to-GDP ratios in excess of 60 per cent are to be reduced by five per cent every year. Economic and political uncertainty are delaying certain investment decisions, hence the subdued demand for credit. The construction sector continues to face difficult times, as EU-funded capital projects only partly alleviate the slowdown. The residential market continued to be characterised by oversupply, with limited demand for new property.
Meanwhile, the growth in BoV’s customer deposits may have seen its momentum decrease – it was up by €94 million to reach €5.62 billion – but the bank has won close to €900 million in new deposits since 2008. That, in spite of the increasing competition offering unusually high interest, regular issuance of government stocks, and a low interest rate environment – which encourages customers to seek higher yield products. The bank’s strategy of launching a wide range of products of varying duration and in different currencies has been successful in ensuring BoV is competitive and visible, Mr Chalmers said.
Internationally, BoV’s participation in the Malta promotion campaign organised by the Malta High Commission and hosted by Harrods in March succeeded in making the bank and the financial services jurisdiction visible to a key target audience in London.
Mr Chalmers said BoV has received positive feedback following the series of business networking events it hosted to promote Malta’s financial services sector to a select group of guests. In London and other major cities, Malta is still a relatively well-kept secret, but is spoken of highly by those who are familiar with its offering.
“It is important that Malta continues to get a positive reception,” Mr Chalmers emphasised. “Confidence takes a long time to build – and we must continue to promote the island and the stability for which it is now well-regarded. It is important that there is no ambiguity, that there is legal and regulatory certainty, and a good network of double taxation agreements. These days, tax minimisation is a much lesser consideration where decisions on relocation are concerned. It is also imperative that we are realistic as a jurisdiction. Bank of Valletta has seen from its own fund services business that we are able to handle a large number of small and medium-sized operations. Malta would have some difficulty, however, in ramping up to service a very large operation with the required level of expertise and resource. We need to grow incrementally.” Internally, meanwhile, BoV has commissioned external consultants to assist it in looking at best international benchmarks and practices in sales and compliance policies, processes and procedures following the “searing experience” of the La Valette Multi-Manager Property Fund, and the completion of two of the three investigations into regulatory matters.
“We have learnt from our own experience and by examining what has happened in other developed financial services jurisdictions,” Mr Chalmers explained. “It is not only banks that have changed the way they do business. Regulators are in the process of rewriting laws and regulations in the US, across Europe, and, of course, in Malta. We are in the process of implementing change within the organisation – change which will be visible to customers, and equally importantly, to staff.”
The bank has also completed a series of changes to its organisational structure, which has seen members of the executive team move into new roles in a bid to broaden their experience and expertise.
Mr Chalmers explained the appointment of former chief officer Charles Borg to chief executive was a “perfect opportunity” to examine whether the organisation’s shape, feel and structure would benefit from revisiting. BoV believed that it could best build a solid executive team and prepare for the future if the senior management levels were flexible and widely experienced. Similar career development is encouraged further down the ranks, Mr Chalmers pointed out.
He noted how the depth in the bank’s talent pool had enabled it to select a successor to chief executive Tonio Depasquale – himself having served the bank in various roles for more than 40 years – internally.
Mr Chalmers described Mr Borg’s leadership style as “open and consultative and outward- looking”, and praised his efforts to be client-focused by dedicating more than half his diary entries to meetings with customers in his first few months in the chief executive’s chair.